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A Cash Infusion From the Boss Props Up Intrexon – For Now

Intrexon shares are miles below their 2015 peak of $65 and a market value that once topped $6 billion. Savvy guys like Michael Dell and Legg Mason alumnus Bill Miller have been boosters, and owned shares as of the end of September. But investors have tired of the Germantown, Md.-based company’s promises to “improve the quality of life and health of the planet” with blockbuster drugs, genetically-modified salmon and apples, biofuels or reproductively sabotaged mosquitoes. It has invented dandy catchphrases, like the trademarked “Powering the Bioindustrial Revolution with Better DNA.” But after two decades of operations and four years as a public company, Intrexon has lost more than $800 million.

Chief executive R. J. Kirk stuck to his story at a Stifel Financial conference in November. “This is the biggest thing in history,” he told an audience. “This is the greatest industrial vector in all of time, alright? And I'll sign in blood on that.” Kirk went on to suggest that Intrexon would yet dwarf Intel (INTC). “We have a ton of technology,” he bragged.

Yet, in the nine months through September 2017, the company suffered nearly $125 million in negative free cash flow – that is, money lost in operations or spent on acquisitions and capital goods. That left it with about $115 million in cash, or about three-quarters’ worth, if the company maintains its recent cash burn rate.

An Intrexon spokesman said yesterday that the company would get back to Barron’s to discuss its business. It didn’t.

Intrexon’s past industrial partners included Dominion Energy (D) and Merck (MRK). But despite hiring teams of investment bankers last year, most of Intrexon’s pocket money has been coming from the pockets of CEO Kirk. He controls 47% of the company’s shares through a maze of investment vehicles including Third Security LLC. A recent 13-D filing explains that “Mr. Kirk controls Third Security, which is the manager of TSCP V and Kapital Joe and which manages the manager of NRM VI Holdings.”

Before Kirk’s year-end injection of $13.7 million, he threw Intrexon another lifeline in October by extending a line of credit of sorts. The company can sell him up to $100 million in preferred stock, which would then pay him an 8% coupon and convert to common stock at $18.96. But unless the stock rallies, or the conversion price is reset, the October financing deal no longer makes sense.

In an annual letter to shareholders released on Tuesday, Kirk acknowledged that the stock market had given his company a grade of "F". But after insisting that Intrexon had "the most valuable biotechnology yet developed," he wrote, "I assign us an 'A'".

Even down at $14, Intrexon sports a $1.7 billion market value. Next week the company might thrill investors with surprising news at the JP Morgan Healthcare Conference. Or investors might wake up to the fact that Intrexon has just a few quarters’ more cash. Opportunities remain for investors to wring returns from Intrexon’s synthetic biology: positive or negative.